Annual Report HKSE CODE:

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1 Annual Report 2012 HKSE CODE: 3983

2 COMPANY PROFILE China BlueChemical Ltd. ( China BlueChem, stock code: 03983) is a large-scale and modernized enterprise engaging in the development, production and sales of mineral fertilisers and chemical products. Headquartered in Beijing, China BlueChem s production facilities are located in Hainan Province, the Inner Mongolia Autonomous Region and Hubei Province. Its total designed annual production capacity amounts to 1,840,000 tonnes of urea, 1,000,000 tonnes of phosphate fertilisers, 1,600,000 tonnes of methanol and 60,000 tonnes of POM. On 29 September 2006, China BlueChem was listed on The Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange ). China BlueChem is one of the largest listed companies in terms of production volume of fertilisers and methanol in China. As a subsidiary of China National Offshore Oil Corporation ( CNOOC ), the competitive advantages owned by China BlueChem laid a solid foundation for its robust development of mineral fertilisers and chemical businesses. The production facilities in Inner Mongolia The production facilities in Hubei The production facilities in Hainan CONTENTS Financial Highlights Operational Highlights Chairman s Statement CEO s Report Management Discussion and Analysis Quality, Health, Safety and Environmental Protection Human Resources Corporate Governance Report Directors, Supervisors and Senior Management Report of Directors Report of the Supervisory Committee Independent Auditors Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Statement of Financial Position Notes to the Financial Statements Glossary Company Information

3 Financial Highlights China BlueChemical Ltd. /Annual Report 2012 Selected Consolidated Income Statement Data For the year ended 31 December, RMB million 2008 (As previously reported) Financial Highlights 2008 (Restated) (Note) Revenue 5, , , , , ,739.2 Cost of sales (3,250.0) (4,505.4) (4,075.3) (4,678.5) (6,488.7) (7,432.9) Gross profit 2, , , , , ,306.3 Other income and gains Selling and distribution costs (82.5) (101.5) (132.8) (147.8) (169.4) (218.1) Administrative expenses (280.8) (380.3) (349.4) (382.6) (418.3) (432.8) Other expenses (28.7) (32.5) (23.6) (34.8) (32.1) (32.8) Finance income Finance costs (12.1) (22.9) (14.5) (11.9) (18.0) (12.5) Exchange gains/ (losses), net (3.1) (4.2) 2.3 (7.5) Share of profits/ (losses) of associates (0.4) Impairment of property, plant and equipment _ (131.7) Profit before tax 2, , , , , ,607.7 Income tax expense (176.1) (131.8) (197.7) (316.0) (556.4) (624.1) Profit for the year 1, , , , , ,983.6 Profit attributable to equity holders of the parent 1, , , , ,810.5 Basic earnings per share attributable to ordinary equity holders of the parent (RMB) Selected Consolidated Statement of Financial Position Data As at 31 December, RMB million 2008 (As previously reported) 2008 (Restated) (Note) Assets Non-current assets 6, , , , , ,945.8 Current assets 5, , , , , ,185.7 Total assets 11, , , , , ,131.5 Equity and liabilities Total equity 10, , , , , ,626.7 Non-current liabilities Current liabilities , , , , ,229.8 Total equity and liabilities 11, , , , , ,131.5 Note: On 28 February 2009, the Company acquired 83.17% and 100% equity interest of Hubei Dayukou Chemical Co., Ltd. ( DYK Chemical ) and ZHJ Mining Company Limited ( ZHJ Mining ) respectively with an aggregate cash consideration of RMB1,161,018,000. As the three parities are all ultimately controlled by CNOOC before and after the acquisition, the Company chose to refer to the principles set out in Accounting Guideline when preparing the consolidated financial statements as if the acquisition had occurred from the date when the combining entities first came under the control of CNOOC, and the consideration was regarded as the deemed distribution to CNOOC, thus restated the 2008 consolidated financial statements. 001

4 China BlueChemical Ltd. /Annual Report 2012 Operational Highlights Operational Highlights Production volume and utilisation rate of the Group s various plants Fertilisers Urea Phosphate Fertilisers Year Ended 31 December Production volume (tonnes) Utilisation Rate (%) Change (%) Change Fudao Phase I 525, ,689 (4.9) (5.2) Fudao Phase II 766, ,914 (15.3) (17.3) CNOOC Tianye 566, , Group total 1,857,661 1,907,697 (2.6) (2.7) DYK MAP 52,917 39, DYK DAP Phase I 400, , DYK DAP Phase II (Note 1) 176, Group total 630, , Chemical Products Hainan Phase I 651, ,226 (0.2) (0.2) Methanol Hainan Phase II 774, ,325 (0.2) (0.1) CNOOC Tianye 166, , Group total 1,591,919 1,570, POM CNOOC Tianye POM (Note 2) 28,831 10, (19.3) Group total 28,831 10, (19.3) Note: 1.The DYK DAP Phase II Plant went into commercial operation on 1 August Its production volume in 2012 was included from the date of the commencement of commercial operation; 2. CNOOC Tianye POM Plant went into commercial operation on 1 October Its production volume in 2011 was included from the date of the commencement of commercial operation. Sales volume of the Group s various plants Unit: tonne Fertilisers Urea Phosphate Fertilisers For the year ended 31 December 2012 For the year ended 31 December 2011 Change (%) Fudao Phase I 543, , Fudao Phase II 792, ,747 (8.5) CNOOC Tianye 544, , Group total 1,880,718 1,867, DYK MAP 54,161 35, DYK DAP Phase I 425, , DYK DAP Phase II 84, Group total 564, , Chemical Products Hainan Phase I 638, ,951 (2.6) Methanol Hainan Phase II 801, , CNOOC Tianye 128,697 98, Group total 1,568,567 1,492, POM CNOOC Tianye POM 33,308 6, Group total 33,308 6,

5 Chairman s Statement China BlueChemical Ltd. /Annual Report 2012 Chairman s Statement Dear Shareholders, In 2012, the worldwide grain planting stimulated the global demand for fertilizers. In China, the demand for methanol has been further driven by the development of alternative energies and expansion on methanol-to-olefin. With the favorable fertilizer and methanol market conditions, your Company achieved sound results in the year 2012, even though unstable global economy and slowed domestic economic growth did cause some difficulties to the Company's business. During the year, the Company's production capacity of phosphate fertilizers increased to 1 million tones per annum, making your Company one of the top 5 manufacturers of phosphate fertilizers in China. In 2012, your Company realized a net profit attributable to the owners of the parent of RMB1,810.5 million. To reward our shareholders, the Board has recommended the payment of a final dividend of RMB0.15 per share for 2012 (tax inclusive), with pay-out ratio steadily increased to 38%. In the election of directors in the third session held in June 2012, it was my honor to be re-elected as Chairman of the Company. Mr. Zhang Xinzhi, Mr. Tsui Yiu Wa, Alec, Mr. Fang Yong and Mr. Chen Kai retired from the Board of Directors of the Company. On behalf of the Board, I would like to express my sincere appreciation to them for their outstanding dedication and significant contribution to the Company s development during their term of directorships with the Company. Directors in new session have considerable expertise and experience in their respective fields of chemical fertilisers and chemical products, business management, financial management, internal control as well as legal and regulatory matters. I am confident that the new session of directors will devise a better development strategy for the Company. In 2012, the Board refined its corporate governance system in accordance with the provisions set out in the revised Listing Rules and Corporate Governance Code. The rules of procedures for the board committees of the Company have been amended for further clarifying and regulating the responsibilities and operating procedures of each committee, in a bid to enhance their effectiveness of decision-making support as well as supervisory functions. Looking forward to 2013, global demand for grain will grow steadily. To secure domestic food supply, the PRC central government will continue to forge ahead the increase in grain production. Thus, the international and domestic demand for chemical fertilizers will grow steadily. Furthermore, the demand for methanol in China will be driven by the rapid development of methanol as an alternative energy and methanol-to-olefin. As a leading manufacturer of chemical fertilizers and methanol in China, your Company will strive to improve its management and enhance its operational efficiency, so as to create higher value to our shareholders. Finally, on behalf of the Board, I would like to express my sincere gratitude to our shareholders for your care and support as well as to our management and staff for their hard work. LI Hui Chairman 003

6 China BlueChemical Ltd. /Annual Report 2012 CEO s Report CEO's Report Dear Shareholders, Your Company accomplished sound operating results in As CEO and President, I am pleased to take this opportunity to report to you the company s operational performance in 2012 and its development plan moving forward. Review of 2012 In 2012, your Company s revenue exceeded RMB 10 billion for the first time, reaching a historical record and representing approximately 10% increase year over year. Our net profit attributable to owners of the parent was RMB1.81 billion. The slightly decrease in net profit was attributable to the serious undersupply of natural gas during the first quarter for CNOOC Tianye in Inner Mongolia, the overhauls of three plants in Hainan and a sluggish domestic POM market amid the slowdown in domestic as well as international economic growth. During the first half of 2012, the company s production encountered several unfavorable situations: the production of urea and methanol of CNOOC Tianye in Inner Mongolia were suspended for 25 and 83 days, respectively, as a result of serious undersupply of natural gas attributable to strong demand for residential heating during the winter season and the construction of the second natural gas pipeline yet-to-be completed by then. Meanwhile, the Company s Fudao Phase I and Phase II Urea Plants and Hainan Phase II Methanol Plant conducted overhauls during the period. As a result of the foregoing, the utilisation rates of our urea and methanol plants declined substantially as compared to the first half of the previous year. During the second half of 2012, the Company ensured safe and stable operation at all major plants through refined production management as well as solid and effective HSE management. For the full year of 2012, the overall utilisation rate of the Company s urea plants exceeded 100% and methanol plants untilisation rate reached 99.5%. One of our key priorities for 2012 was to ensure that the DYK phosphate fertiliser expansion and upgrade project entered into commercial production successfully. With diligent efforts in equipment calibration as well as preparations for production, DYK phosphate fertiliser expansion and upgrade project went through a successful trial run and produced qualified products in April. After passing the functional tests, the DYK phosphate project commenced commercial operation in August. Thus, our annual production capacity of phosphate fertilisers was substantially increased to 1 million tonnes, making your company one of the top 5 domestic manufacturers of phosphate fertilisers. Since the commencement of commercial operation, the production processes have been optimised continuously through ongoing improvements of equipment functions and production process flow, resulting in rising utilisation rates on a monthon-month basis. By the end of the year, production of the plant had accomplished the designed requirements and the production cost of DAP had been lowered to reasonable level. Owing to the sluggishness of the domestic POM market, the selling prices of mid-to-low end POM products remained lower than their costs in Therefore, the Company controlled its POM production volume to align with the market demand during the year. With solid sales network and brand advantage, the sales of our urea and methanol products in 2012 went smoothly and the sales volume increased slightly compared with previous 004

7 CEO s Report China BlueChemical Ltd. /Annual Report 2012 year. Regarding phosphate fertilisers, it had already been the low season for domestic market when our new phosphate fertiliser facility commenced commercial operation, and the market prices started to decline since the fourth quarter due to the export window being closed at the end of September. As a result, the sales of the Company s phosphate fertilisers have been under pressure and the profitability of the company s phosphate fertiliser business has also been affected. Our coal-based urea project in Hegang, Heilongjiang was progressing smoothly. Currently, civil works have almost been completed. We expect that the project be put into trial production in the fourth quarter of Regarding the ancillary coal mine, its geological exploration report had been approved by the government. During the second half of 2012, we initiated management improvement plan on all fronts focusing on the themes of safe production, cost control and refined management. Through diligent work in industry benchmarking and self-assessment, problems in management were identified and rectification measures were formulated based on individual analyses of such issues. Thus, the Company s fundamental management has been further enhanced. The Company has always placed a strong emphasis on environmental protection. By strengthening control over the production process, conducting preventive equipment maintenance and procuring stable operation, we had accomplished our goals in energy saving and emission reduction. The Company saved energy equivalent to 19,000 tonnes of standard coal by national statistical standards. Our emission had been in compliance with national standards. Thus, there had been no incident of environmental pollution in the company s operation. In 2012, we continued to actively engage in charitable activities, making contributions to foster social harmony by providing schooling and education assistance and relief for the underprivileged. Outlook for 2013 Looking forward to 2013, global demand for urea is expected to increase steadily. However, capacity expansion of phosphate fertilisers will put the market under pressure. In China, the expansion of the methanol-to-olefin industry will drive domestic demand for methanol, while the oversupply of mid-to-low end products in the domestic POM market is expected to be alleviated. To address the challenges as well as opportunities, we will continue to ensure safe and stable operation of our major plants by strengthening HSE management and refined production management in 2013, optimise production techniques of POM plants on a continued basis to stabilise and improve product quality, and stringently control cost and expense. Furthermore, to accomplish our annual sales targets, we will track market trends closely, enhance the sales management, further optimise our products distribution channels, and fully leverage on favorable export policies of urea and phosphate fertilisers to be adopted in We will also actively proceed our projects under construction and under feasibility study, and will continue to look out for merger and acquisition opportunities in China and overseas that fit the Company s development strategy. In 2013, my colleagues and I will continue to work diligently under the leadership of the Board of Directors, striving to add value for shareholders with firm commitment and dedicated efforts. YANG Yexin CEO & President 005

8 China BlueChemical Ltd. /Annual Report 2012 Management Discussion and Analysis Management Discussion and Analysis Sector Review and Outlook Fertiliser Industry In 2012, the PRC government continued to encourage the stable increase in grain production nationwide by taking solid actions. Policy support and technological input for increasing grain production was further enhanced, with actual funds committed to the agricultural sector, rural areas and farmers during the year amounted to RMB1,228.7 billion, a significant increase of approximately 18% over Driven by the PRC government s policy to enhance, enrich and assist the agricultural sector, cultivated area across the nation increased steadily in 2012 and total grain production for the year increased by 3.2% to 589,570,000 tonnes, realising a consecutive growth for nine years. In line with the stable development of China s agricultural sector, domestic demand for chemical fertilisers has also increased. In 2012, the low-season export windows, tariff rates and export benchmark prices for domestic urea and phosphate fertilisers remained unchanged from 2011, except that tariffs were excluded from the export benchmark prices for 2012, effectively lowering export costs for domestic urea and phosphate fertilizers manufacturers. (1) Urea Domestic urea production volume in 2012 was approximately million tonnes (in kind), an increase of approximately 14.7% over Export volume of urea increased significantly by around 95% to 6.95 million tonnes (in kind) compared with In 2012, domestic apparent consumption of urea was approximately 60 million tonnes, an increase of approximately 9.1% over Urea prices in the domestic market remained stable in early 2012 until late February when prices started to rise driven by the significant increase in international urea prices and robust domestic demand for the product. By early to mid- May, domestic urea prices had peaked at a level exceeding RMB2,650 per tonne. Thereafter, the domestic market price of urea started to decline until reaching the yearly low of approximately RMB2,050 per tonne in November. Since the start of December, domestic urea prices had steadily rebounded on the commencement of low-season reserve stocking for domestic chemical fertilisers and centralised procurement by manufacturers of compound fertilisers. As at the end of December, the domestic market price of urea was approximately RMB2,250 per tonne. 006

9 Management Discussion and Analysis China BlueChemical Ltd. /Annual Report 2012 (2) Phosphate fertilisers In 2012, domestic production volume of ammonium phosphate exceeded 25 million tonnes (in kind), an increase of approximately 10% over Export volume of ammonium phosphate amounted to 4.53 million tonnes (in kind), a decrease of 7% compared with Domestic apparent consumption of ammonium phosphate was approximately 20 million tonnes, an increase of approximately 8% over In 2012, domestic prices of ammonium phosphate developed stably during the first three quarters, with the market price of DAP fluctuating between RMB3,200 and RMB3,400 per tonne. Ammonium phosphate prices started to decline gradually in the fourth quarter as inventory began to increase as a result of the close of the export window and the onset of the low season for domestic demand, and international prices for phosphate fertilizers also declined. As at the end of the year, the market price of DAP was approximately RMB3,050 per tonne. Chemical Industry In 2012, while the demand for methanol from traditional downstream sectors was affected by the slowdown of the domestic economic growth, the demand for methanol in the PRC market was driven by the rapid development of methanol as an alternative energy and methanol-to-olefin. In 2012, the demand for POM in the domestic market was sluggish amid volatile international economic developments and the slowdown in domestic economic growth. The continuous growth in domestic production of mid-to-low end POM has also resulted in serious imbalance of supply over demand in the domestic market. (1) Methanol In 2012, domestic methanol production volume exceeded 26 million tonnes, an increase of approximately 32% over Methanol import volume amounted to approximately 5 million tonnes, a decrease of approximately 12% compared with Domestic apparent consumption of methanol was approximately 31 million tonnes, an increase of approximately 24% over The major domestic markets for methanol remained stable during the first five months of 2012 with the prices fluctuating in the range of RMB2,900 to RMB3,200 per tonne. Since the beginning of June, however, methanol prices had started to decline due to the significant drop in international energy prices, reaching a yearly low of approximately RMB2,650 per tonne by early July. Thereafter, the domestic market price of methanol fluctuates in the narrow range of RMB2,700 to RMB2,900 per tonne, in line with changes in international energy prices. 007

10 China BlueChemical Ltd. /Annual Report 2012 Management Discussion and Analysis (2) POM In 2012, domestic POM production volume was approximately 260,000 tonnes, an increase of 13% over POM import and export volume amounted to approximately 200,000 tonnes and 50,000 tonnes, respectively. Domestic apparent consumption of POM was approximately 410,000 tonnes, an increase of approximately 9.6% over Since October 2011, the prices for mid-to-low end POM in the domestic market had been declining, until reaching around RMB8,000 per tonne in June As at the end of December 2012, the market price remained at around RMB8,000 per tonne. Business Review Production Management During the reporting period, the Company ensured the safe and stable operation at all its major plants through enhancing HSE management and the refined production management. Hainan Fudao Phase II Urea Plant and CNOOC Tianye s urea plant in Inner Mongolia have all broken their respective records for long-period operation. The utilisation rate of DAP phase II plant of DYK Chemical had been increasing month by month after the plant went into commercial operation, as a result of ongoing optimisation of its production processes and timely rectification of any problems existing in the equipment performance and production process flow. The utilisation rates of the Company s urea and methanol plants were affected by scheduled overhauls at three principal production plants in Hainan during the first half of the year, and the undersupply of natural gas during the first quarter for CNOOC Tianye s urea and methanol plants in Inner Mongolia. Details of production of the Group s plants during the reporting period are set out as follows: Production (tonnes) Year Ended 31 December Utilisation Rate(%) Production (tonnes) Utilisation Rate(%) Chemical fertilisers Urea Fudao Phase I 525, , Fudao Phase II 766, , CNOOC Tianye 566, , Group total 1,857, ,907, Phosphate Fertilisers DYK MAP 52, , DYK DAP Phase I 400, , DYK DAP Phase II (Note 1) 176, Group total 630, , Chemical Products Methanol Hainan Phase I 651, , Hainan Phase II 774, , CNOOC Tianye 166, , Group total 1,591, ,570, POM CNOOC Tianye POM (Note 2) 28, , Group total 28, , Note: 1. The DYK DAP Phase II Plant went into commercial operation on 1 August Its production volume in 2012 was included from the date of the commencement of commercial operation; 2. CNOOC Tianye POM Plant went into commercial operation on 1 October Its production volume in 2011 was included from the date of the commencement of commercial operation. 008

11 Management Discussion and Analysis China BlueChemical Ltd. /Annual Report 2012 Sales Management The Company ensured the sales of its principal products during the reporting period, in spite of the complexities and uncertainties in the market, by strengthening its work in market analysis and prospective judgement and adopting different pricing models based on product characteristics as well as differentiated logistics support measures based on the logistics conditions of target markets. Urea The following table sets out the Group s urea sales volumes by final destinations of products during the preceding two financial years: Sales Region Volume (tonnes) Year ended 31 December Percentage (%) Volume (tonnes) Percentage (%) North-eastern China 139, , Northern China 495, , Eastern China 116, , South-eastern China 88, , Southern China 592, , Hainan 178, , International 269, , Total 1,880, ,867, Phosphate Fertilisers The following table sets out the Group s phosphate fertiliser sales volumes by final destinations of products during the preceding two financial years: Sales Region Volume (tonnes) Year ended 31 December Percentage (%) Volume (tonnes) Percentage (%) North-eastern China 223, , Northern China 164, , Eastern China 53, , South-eastern China 17, , Southern China 19, , International 86, , Total 564, ,

12 China BlueChemical Ltd. /Annual Report 2012 Management Discussion and Analysis Methanol The following table sets out the Group s methanol sales volumes by final destinations of products during the preceding two financial years: Sales Region Volume (tonnes) Year ended 31 December Percentage (%) Volume (tonnes) Percentage (%) North-eastern China 56, , Northern China 61, , Eastern China 176, , South-eastern China 211, , Southern China 981, , Hainan 81, , Total 1,568, ,492, POM In 2012, the Group produced a total of 28,831 tonnes of POM with a sales volume of 33,308 tonnes. BB fertilisers In 2012, the Group produced a total of 76,561 tonnes of BB fertilisers with a sales volume of 76,564 tonnes. Sea-land logistics services In 2012, Basuo Port completed a record-high volume of freight throughput of 8.23 million. 010

13 Management Discussion and Analysis China BlueChemical Ltd. /Annual Report 2012 Financial Review Revenue During the reporting period, the Group s revenue was RMB10,739.2 million, an increase of RMB982.9 million or 10.1% from RMB9,756.3 million in During the reporting period, the Group s external revenue from urea was RMB4,080.2 million, an increase of RMB33.1 million or 0.8% from RMB4,047.1 million in The increase was primarily attributable to: (1) the increase in the selling price of urea by RMB2.3 per tonne, contributing to an increase of RMB4.3 million in revenue, (2) the increase in sales volume of urea by 13,298 tonnes compared with 2011, contributing to an increase of RMB28.8 million in revenue. During the reporting period, the Group s external revenue from phosphate fertilisers was RMB1,759.9 million, an increase of RMB410.1 million or 30.4% from RMB1,349.8 million in The increase was primarily attributable to (1) the commencement of commercial operation of DYK Chemical Phase II in Hubei in August 2012 which contributed to an increase in the sales volume of and revenue from phosphate fertilisers by 134,646 tonnes and RMB408.6 million, respectively; (2) an increase in revenue by RMB34.1 million over 2011 due to an increase in the export volume of phosphate fertilisers by 65,167 tonnes which were partly offset by (3) a decrease in the selling price of phosphate fertilisers by RMB75.5 per tonne, contributing to a decrease in revenue by RMB32.6 million. During the reporting period, the Group s external revenue from the methanol segment was RMB3,462.6 million, an increase of RMB116.7 million or 3.5% from RMB3,345.9 million in The increase was primarily attributable to: (1) an increase in sales volume of methanol by 75,631 tonnes, contributing to an increase of RMB167.0 million in revenue; which was partially offset by (2) a decline in the selling price of methanol by RMB33.7 per tonne, contributing to a decrease in revenue by RMB50.3 million. During the reporting period, the Group s revenue from other segments (primarily comprising manufacture and sales of BB fertilisers, POM and woven plastic bags, trading in fertilisers and chemicals, port operations and provision of transportation services) increased by RMB423.0 million, which was primarily attributable to: (1) an increase in revenue of POM by RMB182.7 million mainly due to an increase in sales volume of 26,817 tonnes, contributing to an increase of RMB194.9 million in revenue; however, such increase was partially offset by a RMB12.2 million decrease in revenue caused by a decline in selling price by RMB1,877.1 per tonne; (2) an increase in revenue of RMB197.4 million from BB fertilisers and trading in fertilisers and chemicals; and (3) the increase in throughput and transportation volumes by Basuo Port, contributing to an increase in revenue by RMB42.9 million. Cost of sales During the reporting period, the Group s cost of sales was RMB7,432.9 million, an increase of RMB944.2 million or 14.6% from RMB6,488.7 million in During the reporting period, the Group s cost of sales for urea was RMB2,293.8 million, a decrease by RMB174.5 million or 7.1% from RMB2,468.3 million in The decrease was primarily attributable to: (1) the completion of the full provision for depreciation of equipment built during the initial investment in Hainan Fudao Phase I Urea Plant and CNOOC Tianye Urea Plant in Inner Mongolia resulting in a decrease in cost by RMB165.9 million; (2) the decrease in export tariff for urea by RMB131.9 million; which were partially offset by (3) the increase in sales volume of urea by 13,298 tonnes over 2011 and the increase in cost by RMB123.3 million owing to the overhaul of two urea plants in Hainan. The Group s cost of sales for phosphate fertilisers for the reporting period was RMB1,604.3 million, an increase of RMB479.4 million or 42.6% from RMB1,124.9 million in The increase was primarily attributable to: (1) an increase in cost of sales by RMB374.7 million in line with the increase in the Group s sales volume of phosphate fertilisers by 134,646 tonnes; (2) an increase in cost by RMB84.3 million owing to rising prices for externally sourced phosphoric ores coupled with the gradual increase in the utilization rate of the Phase II Phosphate Fertiliser Plant after the commencement of commercial operation; and (3) the increase in export tariff for phosphate fertilisers and miscellaneous freight costs by RMB20.4 million over The Group s cost of sales for methanol for the reporting period was RMB2,068.9 million, an increase of RMB117.2 million or 6.0% from RMB1,951.7 million in The increase was primarily attributable to: (1) an RMB99.8 million increase in cost in line with the increase in the Group s methanol sales volume by 75,631 tonnes; and (2) the increase in cost by RMB17.4 million owing to the overhaul of Hainan Phase II Methanol Plant and the suspension, during the first quarter, of CNOOC Tianye Methanol Plant. The Group s cost of sales from other segments for the reporting period increased by RMB522.1 million over The increase was primarily attributable to: (1) an RMB296.9 million increase in cost in line with the increase in the Group s POM sales volume by 26,817 tonnes; (2) an increase of RMB185.5 million in the cost for BB fertilisers, and trading in chemical fertilisers and chemicals; and (3) the increase in the throughput and transportation volumes of Basuo Port, contributing to an increase in cost of RMB39.7 million. 011

14 China BlueChemical Ltd. /Annual Report 2012 Management Discussion and Analysis Gross profit The Group s gross profit for the reporting period was RMB3,306.3 million, an increase of RMB38.7 million or 1.2% from RMB3,267.6 million in The increase was primarily attributable to: (1) the increase in gross profit for urea by RMB207.6 million as a result of the increase in the selling prices coupled with the decrease in costs; (2) the decrease in gross profit for phosphate fertilisers by RMB69.3 million, caused by the decrease in the selling prices coupled with the increase in the costs owing to rising prices for externally sourced phosphoric ores; (3) largely stable gross profit for methanol as the effect of the increase in sales volume was largely offset by the declined prices and increased costs; and (4) the decrease in gross profit for other segments by RMB99.1 million mainly caused by a decrease in the gross profit for POM by RMB114.2 million. Other income and gains The Group s other gains for the reporting period amounted to RMB121.1 million, a decrease by RMB6.8 million or 5.3% from other gains of RMB127.9 million in The decrease was primarily attributable to: (1) a decrease in gains from entrusted funds by RMB13.2 million; (2) an increase in income from sales of materials by RMB6.4 million. Selling and distribution costs The Group s selling and distribution costs for the reporting period amounted to RMB218.1 million, an increase of RMB48.7 million or 28.7% from RMB169.4 million in The increase was primarily attributable to the increase in transportation, loading and unloading, miscellaneous port costs, etc in line with the increase in the sales volume of POM and phosphate fertilisers as well as the export volume of urea and phosphate fertilisers during the year. Administrative expenses The Group s administrative expenses for the reporting period amounted to RMB432.8 million, an increase of RMB14.5 million or 3.5% from RMB418.3 million in The increase was primarily attributable to the increase in the technological research expenses of CNOOC Fudao as a hi-tech enterprise. Other expenses The Group s other expenses for the reporting period amounted to RMB32.8 million, an increase of RMB0.7 million or 2.2% from RMB32.1 million in Finance income and finance costs The Group s finance income for the reporting period was RMB15.6 million, a decrease by RMB0.4 million or 2.5% from RMB16.0 million in The Group s finance costs for the reporting period amounted to RMB12.5 million, a decrease by RMB5.5 million or 30.6% from RMB18.0 million in The decrease was primarily attributable to the Group s repayments of bank loans in connection with the CNOOC Tianye POM project and the DYK Chemical expansion and upgrade project before their respective maturity dates, in the amounts of RMB200.0 million and RMB225.0 million, respectively, during the reporting period. Asset impairment losses During the reporting period, CNOOC Tianye incurred losses from its POM business, due to the serious imbalance of supply over demand, and low prices in the market for mid-to-low end POM and the increased production costs owing to the low utilization rate of the plant. In accordance with IAS36, where there are indications of asset impairment, an estimate should be made in respect of its recoverable amount. The Company appointed Liuhetai Asset Appraisal Company Limited ( 六合泰資產評估事務所有限責任公司 ) to conduct an appraisal of the recoverable amount of CNOOC Tianye s POM Plant as at the benchmark date () using the discounted future cash flow method. The conclusion of the appraisal is as follows: as at the benchmark date, namely, the recoverable amount of CNOOC Tianye s POM Plant was RMB1,491.6 million, representing a shortfall of RMB131.7 million from its book value. Hence the Group has made a provision for asset impairment loss in the amount of RMB131.7 million. Exchange losses, net During the reporting period, the Group recorded exchange losses of RMB7.5 million, compared with exchange gains of RMB2.3 million for 2011, which was primarily attributable to the increase in export volume of urea and phosphate fertilisers and changes in the US dollar exchange rate. Share of profit of an associate Shanxi Hualu Yangpoquan Coal Mining Co., Ltd. ( Yangpoquan Coal ), in which the Company holds a 49% equity interest, was unable to resume production since its suspension in March Pursuant to the requirements of IAS 28 and IAS36, where an indication of asset impairment exists, the asset s recoverable amount shall be estimated. Zhonglian Asset Appraisal Group Limited was appointed by the Company to conduct an appraisal of the recoverable amount of Yangpoquan Coal as at the benchmark date () using the discounted future cash flows method, which concluded that the estimated recoverable amount of Yangpoquan Coal as at was RMB1,345.2 million. Accordingly, the recoverable amount of the long-term equity investment, calculated by the management on a pro rata basis, was higher than its carrying value of RMB653.2 million. 012

15 Management Discussion and Analysis China BlueChemical Ltd. /Annual Report 2012 Income tax expense The Group s income tax expense for the reporting period was RMB624.1 million, an increase of RMB67.7 million or 12.2% from RMB556.4 million in The increase was primarily attributable to: (1) the increase in income tax expense by RMB101.4 million due to the upward adjustment of the applicable tax rate for the Group during the reporting period; which was partially offset by (2) the decrease in enterprise income tax expense by RMB33.7 million due to the decrease in the Group s profit before taxation for the reporting period. Net profit for the year The Group s net profit for the reporting period was RMB1,983.6 million, a decrease by RMB236.1 million or 10.6% from RMB2,219.7 million in The decrease in net profit was mainly attributable to: (1) the increase in loss incurred from the POM business by RMB136.2 million and the provision of asset impairment loss of RMB131.7 million for the POM Plant; (2) the decrease in profit for phosphate fertilisers by RMB93.3 million, as a result of the declined selling prices coupled with increased costs owing to rising prices for externally sourced phosphoric ores; (3) the increase in profit by RMB187.6 million due to the increased selling prices coupled with reduced costs for the Group s urea products; and (4) the increase in the Group s income tax expenses by RMB67.7 million. Dividends The Board of Directors (the Board ) recommended the payment of a final dividend of RMB0.15 per share for 2012, aggregating RMB691.5 million. The proposed final dividend for 2012 will be subject to the approval of the shareholders of the Company at the 2012 annual general meeting. Capital expenditure During the reporting period, the Group s capital expenditure in respect of acquisition, property, plant and equipment and prepaid land lease payments amounted to RMB1,608.1 million. Capital expenditure primarily included: (1) RMB502.6 million for the DYK Chemical DAP Expansion Project; (2) RMB638.6 million for the Huahe 520,000 tonnes/year Urea Project; (3) RMB267.3 million for expansion and improvement of Basuo Port; and (4) RMB199.6 million for upgrades and equipment purchases for production plants as well as other projects. Pledge of assets During the reporting period, the Group did not pledge any assets. Capital management The primary objective of the Group s capital management is to ensure that it maintains a strong credit rating and healthy capital structure in order to safeguard its normal production and operations in order to maximise shareholders value. The Group manages its capital structure and makes timely adjustments to it in light of changes in economic conditions. To maintain or realign our capital structure, the Group may raise capital by way of new debts or issue of new shares. The gearing ratio of the Group as at (calculated as interest-bearing liabilities divided by the sum of total equity and interest bearing liabilities) was 0, a decrease by 3.04% compared with 3.04% as at 31 December 2011, which was primarily attributable to the Group s repayments of bank loans in connection with the CNOOC Tianye POM project and the DYK Chemical expansion and upgrade project before their respective maturity dates, in the amounts of RMB200.0 million and RMB225.0 million, respectively, during the reporting period. Cash and cash equivalents As at the beginning of the reporting period, the Group s cash and cash equivalents were RMB2,803.3 million. The net cash inflow from operating activities was RMB2,594.6 million, net cash outflow from investing activities was RMB1,481.1 million, and net cash outflow from financing activities was RMB1,337.9 million for the reporting period. As at, the Group s cash and cash equivalents were RMB2,578.9 million. The Group has sufficient working capital to meet the funds required for its day-to-day operation and future development. Human resources and training As at, the Group had 5,935 employees. The aggregate of employees wages and allowances for 2012 was approximately RMB494.8 million. The Group has an effective remuneration package policy and a systematic welfare plan as well as an effective performance appraisal system in place to ensure that the remuneration policy of the Company effectively provides incentive to its staff. The Company determines staff remuneration according to their positions, performance and capability. During the reporting period, the Company held 3,143 training courses, with a total of 99,870 enrolments and 680,134 training hours according to its annual training program. 013

16 China BlueChemical Ltd. /Annual Report 2012 Management Discussion and Analysis Market risks The major market risks of the Group are exposure to changes in the selling prices of the key products and in costs of raw materials (mainly natural gas, phosphate ore, ammonia and sulphur), fuels (mainly coal), energy costs and fluctuations in interest rates or exchange rates. Commodity price risk The Group is also exposed to commodity price risk arising from changes in product selling prices and costs of raw materials and fuels. Interest rate risk The major interest rate risk that the Group is exposed to includes the Group s long-term debt obligations which are subject to floating interest rates. Foreign exchange risk The Group s revenue was primarily denominated in Renminbi and secondarily in US dollar. During the reporting period, the Renminbi to US dollar exchange rate ranged between and RMB to USD exchange fluctuation may affect import of our equipment and raw materials as well as export of our products. As at, the Group had no debts which were denominated in currencies other than RMB. Inflation and currency risk According to the National Bureau of Statistics of China, the consumer price index of the PRC increased by 2.6% during the reporting period, which did not have a significant effect on the Group s operating results for the year. Liquidity risk The Group monitors its risk exposure to a shortage of funds. The Group also considers the liquidity of both of its financial investments and financial assets (for example, trade receivables and other financial assets) and projected cash flows from operating activities. The Group s objective is to maintain a balance between continuity and flexibility of funding through the use of various funding options, including bank loans and bonds. As at, none of the Group s debts would mature in less than one year based on the carrying values of the borrowings in the financial statements. Post balance sheet events and contingent liabilities After the reporting period and up to the date of this annual report, the Group had no material post balance sheet events or material contingent liabilities. Material litigation and arbitration As at, the Group had no material litigation or arbitration. Major acquisition and disposition of the Company s subsidiaries and associates As at, the Group had no major acquisition or disposition.. 014

17 Management Discussion and Analysis China BlueChemical Ltd. /Annual Report 2012 Sector Outlook Looking forward to 2013, international grain prices will be supported by low grain stock levels around the world coupled with better global economy. To ensure food supply security in China, the PRC government will continue to drive the increase in grain production. Thus, the global demand for chemical fertilizers will grow steadily. Pursuant to the 2013 tariff policy announced by the PRC government in December 2012, low-season export tariffs for urea and ammonium phosphate have been lowered while export benchmark prices have been raised. The low-season export window for ammonium phosphate has been also extended for one month. The policy will promote the export of urea and phosphate fertiliser during low seasons. In 2013, China s economy is expected to grow steadily. Domestic development of methanol as an alternative energy and methanol-to-olefin will increase the demand for methanol; while domestic oversupply of mid-to-low end POM is expected to be alleviated. Our Key Tasks in 2013 In 2013, the Company will focus its efforts on the following tasks: 1. To continue to strengthen the refined production management, in order to ensure safe, stable and efficient operation of the Company s major urea, phosphate fertiliser and methanol plants; 2. To continue to enhance internal management, optimise allocation of resources at our production bases, and stringently implement cost and expense control; 3. To fully leverage on favourable export policies regarding urea and phosphate fertilisers in 2013 and properly arrange sales of urea and phosphate fertiliser; 4. To continue to optimise the production techniques of the POM plant in Inner Mongolia, in order to stablize and improve the quality of products; 5. To actively advance the construction of the coal-based urea project in Hegang, Heilongjiang, striving to commence trial production in the fourth quarter of 2014; 6. To launch the project in CNOOC Tianye in Inner Mongolia to convert its production from natural gas-based to coalbased; 7. To resolve as soon as possible the dispute with the joint venture partner of the Yangpoquan coal mine in Hualu, Shanxi; and 8. To continue to look out for merger and acquisition opportunities in China and overseas that fit the Company s development strategy. 015

18 China BlueChemical Ltd. /Annual Report 2012 Quality, Health, Safety and Environmental Protection 016

19 Quality, Health, Safety and Environmental Protection China BlueChemical Ltd. /Annual Report 2012 Quality, Health, Safety and Environmental Protection The Company has accomplished its HSE management objectives for 2012 and ensured strong alignment of shareholders value, customers interests, employees health and social responsibility, as it carried out vigorous investigation and rectification of hazards and assessment of significant danger sources with a special emphasis on the prevention of significant risks in a move to enhance HSE management, in continued adherence to the safety management philosophy of Safety First and Focus on Prevention. Quality The Company ensures the attainment of its targets in quality assurance through the stringent and consistent implementation of the quality control management system. During the reporting period, the Company s urea products attained a superior quality rate of 99.15% with a 100% pass rate on net weight of single packet and a 94% customer saisfaction rate, methanol products attained a superior quality rate of 100% with a 97.2% of customer satisfaction rate; and DAP products attained a superior quality rate of 100%. Our Fudao granular urea manufactured at the Hainan production base was again awarded the title of Famous Brand of Hainan. Health, Safety and Environmental Protection (HSE) In 2012, the Company continued to improve its HSE system by updating the occupational health management system and emergency setup, as well as introducing a HSE incentive system. In 2012, the Company strengthened its management of contractors and procured contractors to improve their safety management standards by setting pre-conditions for the award of contracts, exercising ongoing control during contract works and conducting assessments on a continuous basis. The Company continued to carry out HAZOP (hazard and operability analysis) at the bases in order to systematically identify potential risks existing in the chemical production units and enhance staff skills in handling and operating hazardous tasks. The Company has always placed a strong emphasis on environmental protection. By strengthening control over the production procedures, introducing preventive maintenance for equipment and procuring stable production at the plants, our targets in energy conservation have been achieved in a satisfactory manner. In 2012, the Company achieved excellent results in HSE management. No major incident of responsibility or occupational hazards occurred during the year. The OSHA index of recordable incident was

20 China BlueChemical Ltd. /Annual Report 2012 Human Resources Human Resources In adherence to our personnel management principle of being people-oriented and employee-caring and with a strong focus on enhancing awareness for execution, emphasizing team building and driving optimisation of the employment and remuneration system, the Company is fully committed to improving its human resource management standards to provide a solid base and secured availability of high-calibre staff. Remuneration and Benefits Taking into account the basis of market competition and internal fairness, the Company provides employees with a sophisticated and highly competitive remuneration and benefit regime. Staff remunerations are determined according to their positions, performances and capabilities. In 2012, the Company further improved and standardised subsidy policy for offsite work based on the actual conditions of its subsidiaries to offer support for its project development and procure staff stability. Performance Appraisal The Company has established a scientific and reasonable performance appraisal scheme and an effective incentive and binding mechanism to assure mutual development for the Company and its employees in all aspects. In 2012, the Company developed a sales incentive regime to fulfill its requirements in centralised sales, in close tandem with its annual tasks and objectives and in adherence to the principles of Objectivity, Equity, Fairness and Thoroughness. Training Management In 2012, the Company streamlined and standardised its training and management regime and amended its Rules for the Appraisal of Training Management. The effectiveness of training has been enhanced as internal trainers and teaching materials have been selected within the Company on a merit basis. In 2012, our staff participated in the Fifth Occupational Skill Competition for Clamp Workers of Chemical Machinery of the National Petrochemical Industry and won a firstclass award for team contest, 1 individual gold medal and 2 individual silver medals. In 2012, the Company was presented with the 11th National Outstanding Contribution Award for the Training of Skilled Personnel by the Ministry of Human Resources and Social Security. As at the end of 2012, the Company held 3,143 training courses for a total of 99,870 participants, spanning over 680,139 hours in aggregate. 018

21 Human Resources China BlueChemical Ltd. /Annual Report

22 China BlueChemical Ltd. /Annual Report 2012 Corporate Governance Report Corporate Governance Report The Company believes that a sound and solid corporate governance system and structure is an important cornerstone to the Company s sustainable development and the enhancement of shareholders value. The Company is committed to the implementation of high-standard corporate governance practices and procedures, as well as open communications with and fair information disclosure for all stakeholders, so as to create greater value to shareholders. During the reporting period, the Company has been in compliance with all the code provisions of the Code on Corporate Governance Practices (amended and renamed the Corporate Governance Code with effect from 1 April 2012) set out in Appendix 14 to The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ) during the period from 1 January 2012 to 31 March 2012, and of the Corporate Governance Code from 1 April 2012 to the end of the reporting period. Since its listing, the Company has established a well-balanced and independently-operated modern corporate governance structure, comprising the general meetings, the board of directors (the Board ), the supervisory committee of the Company (the Supervisory Committee ) and senior management of the Company in accordance with the laws and regulations, such as the Company Law of the People s Republic of China (the Company Law ), rules and guidelines of domestic and overseas regulatory bodies, and the requirements of the provisions of the Listing Rules and Appendix 14 thereto. Tasks accomplished by the Company during the reporting period in connection with the implementation of the highstandard corporate governance primarily include: (1) a comprehensive streamlining of the Company s corporate governance system in accordance with the amended Listing Rules and the Corporate Governance Code set out in Appendix 14 thereto and modification of the rules of procedures for three committees under the Board to ensure that the duties and operating procedures of the specialised committees of the Board are consistent with the amended Listing Rules and corresponding code provisions in Appendix 14 thereto; (2) recommendations by the Board on addition of legal professionals and increasing the number of non-executive Directors during the election of new session of the Board, based on careful assessment of the structure, headcount and composition of the Board, resulting in the third session of the Board officially taking office on 5 June 2012 following consideration and approval by the general meeting, and adjustment of the composition of the Board committees on the same day; (3) optimisation of the governance system and framework of each of the Group s subsidiaries, resulting in further improvements to governance standards of the Group. 020

23 Corporate Governance Report China BlueChemical Ltd. /Annual Report 2012 Corporate governance of the Company during the reporting period is summarised as follows: 1 General meetings Duties of general meetings The general meeting, which is the organ of authority of the Company, shall exercise in accordance with the law the following authorities: to decide on operating strategies, investment plans, proposals for annual financial budgets and final accounts, and proposals for profit allocations and losses recovery of the Company; to elect and replace directors and supervisors who are not employee representative supervisors and to fix the remunerations of directors and supervisors; to consider and approve reports of the Directors and the Supervisory Committee, respectively; to pass resolutions on matters such as changes in registered capital, mergers, demergers, changes in corporate form, dissolution and liquidation of the Company; to pass resolutions on issuance of bonds and other securities and listing of the Company; to pass resolutions on appointment, removal or non-reappointment of the accounting firm; to consider and approve major guarantees and acquisitions or disposals of major assets of the Company; to amend the articles of association of the Company (the Articles ); to consider and approve new motions proposed by shareholders, either individually or collectively, holding three percent or more of the shares of the Company carrying the right to vote; to consider and approve share incentive schemes; to deal with matters authorised or delegated by the general meetings to the Board; other matters which are required by laws, administrative regulations and the Articles to be resolved by the general meeting. Information on General Meetings During the reporting period, the Annual General Meeting of the Company was held, at which 17 resolutions in respect of the financial statements, the report of the Directors, the report of the Supervisory Committee and the profit allocation proposal of 2011, the budget proposal of 2012 and the candidates for directors of the Board and supervisors of the Supervisory Committee of the third session were considered and passed. All Directors of the Company attended the Annual General Meeting. The general meeting is the organ for the shareholders of the Company to exercise their authority. The procedures for the holding and the approval of resolutions of the above general meetings have complied with the relevant laws and regulations and the relevant provisions of the Articles and have thereby effectively safeguarded the interests of all shareholders. Shareholders Rights Pursuant to the provisions of the Articles, specific rights of the shareholders of the Company in the following three aspects are as follows: Requisition of extraordinary general meetings When shareholders, individually or collectively, holding ten per cent or more of the issued and outstanding shares of the Company carrying the right to vote, request in writing to convene an extraordinary general meeting, the Board shall convene an extraordinary general meeting within 2 months and include the proposals put forward by the requisitioner(s) in the agenda of the meeting. Procedures for putting forward proposals at general meetings Where a general meeting is being convened by the Company, shareholders individually or collectively holding three per cent or more of the shares of the Company carrying the right to vote, shall be entitled to put forward and submit new proposals in writing ten days before the date of the general meeting to the convenor of the general meeting, who shall issue a supplementary notice of the general meeting within two days after receipt of the same to all other shareholders and include the proposals that fall within the scope of duties of a general meeting in the meeting agenda and table them for consideration by the general meeting. 021

24 China BlueChemical Ltd. /Annual Report 2012 Corporate Governance Report Proposals for a general meeting shall satisfy the following conditions: (1) the contents of the proposals shall not contravene the provisions of law and regulations and shall fall within the scope of business of the Company and the duties of a general meeting; (2) the proposal shall have clear topics for discussion and specific matters to be resolved upon; and (3) the proposals shall be submitted to or lodged with the Board in writing. The said proposals and written requests from the aforesaid requisitioner(s) calling for the convening of an extraordinary general meeting may be lodged with the Board or the Company Secretary through personal delivery, mail or courier at the following address: Unit 1707, Kaikang CNOOC Mansion, No.15, Sanqu, Anzhenxili, Chaoyang District, Beijing. Procedures for making enquiries to the Board and information available thereon Shareholders of the Company shall receive a copy of the Articles after payment of fees at cost in accordance with the provisions of the Articles; shall be entitled, after payment of reasonable fees, to inspect and photocopy of the following information, including the registers of members, personal information of the directors, supervisors, president and other senior management of the Company; the status of share capital of the Company; the report of the total nominal value, numbers, highest and lowest prices of every class of shares repurchased by the Company and all expenses paid by the Company thereon since the previous accounting year; minutes of general meetings, resolutions of Board meetings and the Supervisory Committee meetings; and counterfoils of corporate bonds and financial reports of the Company. Shareholders of the Company may raise their concerns with or make enquiries about the aforesaid information to the Board via the address, postal address and telephone numbers posted on the Company s website. 2 Board of Directors The Board, which is the decision-making body within the Company s corporate governance structure, is accountable to the general meeting. The Directors formulate business strategies and oversee the affairs of the Company on a collective basis. Duties of the Board While it delegates authorities and responsibilities to the management for the purposes of implementing business strategies and managing day-to-day business operations of the Group, the Board is jointly responsible for formulating business strategies and policies, operating plans and investment proposals, establishing management objectives, reviewing the performance of the Company, evaluating the effectiveness of management strategies, formulating the Company s proposals for profit allocations and losses recovery, appointing or removing senior management of the Company and fixing their remunerations, deciding on the establishment of the Company s internal management structure, formulating the Company s basic management regime, and exercising proprietary powers to, inter alia: Convene the general meeting, report general meetings and implement the resolutions of the general meetings; formulate the operating plans, investment proposals, proposals for annual financial budgets and final accounts, and proposals for profit allocations and losses recovery of the Company; formulate proposals for increase or reduction of the registered capital, issuance of bonds and other securities and listing of the Company; formulate proposals for mergers, demergers, changes in corporate form and dissolution of the Company; decide on the establishment of the Company s internal management structure, appoint or remove the President of the Company, appoint or remove other senior management based on the nomination of the President and fix their remunerations; formulate proposals for amendments to the Articles and basic management regime of the Company; put forward proposals to the general meetings for the appointment, re-appointment or dismissal of accounting firms providing auditing services to the Company; exercise other authorities stipulated in the Articles or conferred by general meetings. 022

25 Corporate Governance Report China BlueChemical Ltd. /Annual Report 2012 Directors The Board currently consists of seven Directors, including one executive Director, three non-executive Directors and three independent non-executive Directors. No relationship (including financial, business, family or other significant or relevant relationship) exists among the members of the Board. The profiles of the Directors are set out on pages 31 to 32 of this annual report. A list setting out the names, duties and functions of all Directors has been published on the websites of The Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange ) and the Company respectively in accordance with Code Provision A.3.2 of the Corporate Governance Code. In addition to compliance with the provisions of the Company Law and the Listing Rules, the composition and structure of the Board has also catered to the needs of the Company s actual operating conditions and development, as a result of which the Company has established an efficient internal balancing mechanism. The current members of the Board are set out as follows: Board member Position Date of Appointment Li Hui Chairman and non-executive Director 5 June 2012 Yang Yexin Executive Director 5 June 2012 Yang Shubo Non-executive Director 5 June 2012 Zhu Lei Non-executive Director 5 June 2012 Gu Zongqin Independent non-executive Director 5 June 2012 Lee Kit Ying Independent non-executive Director 5 June 2012 Lee Kwan Hung Independent non-executive Director 5 June 2012 Note: The term of office for the above Directors is three years. Each Director of the Company is eligible for re-election upon the expiry of his/ her term of office. Mr. Fang Yong (former Executive Director), Mr. Chen Kai (former Executive Director), Mr. Zhang Xinzhi (former independent non-executive Director) and Mr. Tsui Yiu Wa, Alec (former independent non-executive Director) were Directors of the Company for the period from 1 January 2012 to 5 June The Board complied with the requirements of the Listing Rules of having at least three independent non-executive Directors whose qualifications were in full compliance with the provisions of the Listing Rules and at least one independent non-executive Director whose qualifications were in full compliance with Rule 3.10 (2), namely, having appropriate professional qualifications or appropriate accounting or relevant financial management expertise. In addition, the Company has received annual confirmation letters from each of its independent non-executive Directors in respect of their independence. The Board has assessed the independence of each independent non-executive Director and, therefore, considers all independent non-executive Directors to be independent within the meaning of the Listing Rules. The independent non-executive Directors have no business or financial interests in either the Company or its subsidiaries, nor do they have executive duties in the Company. Independent non-executive Directors owe a fiduciary duty to the Company and its shareholders, and in particular, are entrusted with the duty to safeguard the interests of minority shareholders. They perform a vital balancing function in the decision-making process of the Board and play a key role in corporate governance. During the reporting period, the independent non-executive Directors expressed their views and advice on matters concerning the interests of shareholders and the Company at the Board meetings. Each of the non-executive Director and independent non-executive Directors entered into a service contract with the Company for a term of three years from 5 June 2012 or until a new Director is elected at the general meeting held by the Company in the year when his/her term of office expires. If, however, non-executive Directors and independent nonexecutive Directors are not re-elected promptly when their term of office expire, the existing non-executive Directors and independent non-executive Directors shall, in accordance with the provisions of the laws, regulations, and the Articles, discharge their duties as non-executive Directors and independent non-executive Directors prior to the election at the general meeting held by the Company in the year when their term of office expire. 023

26 China BlueChemical Ltd. /Annual Report 2012 Corporate Governance Report Information of Board Meetings During the reporting period, the Board held five regular meetings, which were held in compliance with the provisions of the relevant laws and regulations and the Articles. The agenda were set after consultation with members of the Board. The Directors must declare their direct and indirect interests (if any) in relation to the issues to be discussed at Board meetings. The Directors having such interests must abstain from voting on such issues at such meeting and shall not be counted in the quorum. The minutes of Board meetings are kept by the Board Secretary. Details of attendance of Board members at Board meetings for the year ended are as follows: Director Number of meetings attended / held Attendance rate (%) Li Hui 5/5 100 Yang Yexin 5/5 100 Yang Shubo(Note 1) 3/3 100 Zhu Lei(Note 1) 3/3 100 Gu Zongqin 5/5 100 Lee Kit Ying (Note 1) 3/3 100 Lee Kwan Hung (Note 1) 3/3 100 Fang Yong (Note 2) 2/2 100 Chen Kai (Note 2) 2/2 100 Zhang Xinzhi (Note 2) 2/2 100 Tsui Yiu Wa, Alec (Note 2) 2/2 100 Note: (1) Mr. Yang Shubo, Mr. Zhu Lei, Ms. Lee Kit Ying and Mr. Lee Kwan Hung were appointed Directors on 5 June Three Board meetings were held from 5 June 2012 to. (2) Mr. Fang Yong, Mr. Chen Kai, Mr. Zhang Xinzhi and Mr. Tsui Yiu Wa, Alec did not offer themselves for re-election to the third session of the Board owing to other work commitments. Two Board meetings were held from 1 January 2012 to 5 June During the reporting period, in compliance with relevant provisions of the amended Listing Rules and Appendix 14 thereto, the Board further enhanced the Company s corporate governance standards by revising the rules of procedures of the specialised committees under the Board and effectively fulfilled its corporate governance functions. The Board has fully played its role as a decision-maker in all aspects of strategy formulation, production and operation, project investment and corporate management, effectively driving up the level of standardisation in corporate governance and the efficiency of its operation. Training for Directors In accordance with Code Provision A.6.5 of the Corporate Governance Code, all Directors should take part in continuous professional development to develop and upgrade their knowledge and skills so as to ensure continued contributions to the Board in a comprehensively informed and relevant manner. During the reporting period, all Directors participated in a number of training sessions held in various formats, which included, specifically, internal training organised by the Company, training provided by other organisations and individual study of relevant documents. All Directors (including Li Hui, Yang Yexin, Yang Shubo, Zhu Lei, Gu Zongqin, Lee Kit Ying and Lee Kwan Hung) participated in the onsite training sessions organised by the Company on 5 June 2012 and 22 December 2012, covering topics such as the Listing Rules and its amendments, directors responsibilities, the new legislation on obligations for the disclosure of inside information and the Model Code for Securities Transactions by Directors of Listed Issuers. On 23 October 2012, the Directors also received from the Company via mail documentation such as Guide for Directors and Guidelines for Independent Non-executive Directors, and the Directors completed this training by reading through such information. In addition, Mr. Zhu Lei, Mr. Gu Zongqin, Ms. Lee Kit Ying and Mr. Lee Kwan Hung have also participated in on-site trainings by visiting some production bases of the Company so as to better understand the Company s business. Corporate Governance Functions The Board is responsible for carrying out the corporate governance functions and has fulfilled their duties and responsibilities, as set out in Code Provision D.3.1 of the Corporate Governance Code, to formulate and review the Company s corporate governance policy and practices, review and monitor the training and continuous professional development of Directors and senior management, review the Company s compliance with laws, regulatory provisions and the Corporate Governance Code and disclosures in the Corporate Governance Report. 024

27 Corporate Governance Report China BlueChemical Ltd. /Annual Report Committees of the Board There are four subordinate committees under the Board, namely, the Audit Committee, the Remuneration Committee, the Nomination Committee and the Investment Review Committee, the terms of reference of each of which have been defined in writing and approved by the Board covering its duties, powers and functions. The terms of reference of the Audit Committee, the Remuneration Committee and the Nomination Committee have been defined by reference to terms recommended by the Corporate Governance Code and published on the websites of the Hong Kong Stock Exchange and the Company respectively. Each committee has adequate resources to perform its duties, and shall report, raise issues, and provides valuable recommendations to the Board regularly to assist the Board in making decisions. Audit Committee The Audit Committee currently consists of five members, including independent non-executive Directors Ms. Lee Kit Ying, Mr. Gu Zongqin and Mr. Lee Kwan Hung and non-executive Directors Mr. Yang Shubo and Mr. Zhu Lei. Ms. Lee Kit Ying is the Chairman. The qualifications of the chairman of the Audit Committee are in compliance with the requirements under Rule 3.21 of the Listing Rules. The primary duties of the Audit Committee are to review and supervise the integrity and preparation procedures of the financial statements of the Group and review the annual production operation and financial budget proposals. The Audit Committee is also responsible for the review of the independence and objectivity of the external auditors of the Company and the validity of audit procedures, the appointment, remuneration and terms of engagement of auditors and any issues in connection with the appointment and dismissal of auditors. In addition, the Audit Committee is also responsible for reviewing the effectiveness of the internal control procedures of the Company to ensure efficiency of business operation and achievement of the Company s corporate objectives and strategies. The Audit Committee also examines the annual internal audit work planning of the Company and submits relevant reports, deliberations and recommendations to the Board. The Audit Committee held three meetings during the reporting period and the work it performed is summarised as follows: Reviewed the 2011 financial statements and the 2012 interim financial statements, in particular, focusing on their compliance with accounting standards, the Listing Rules and other regulations, and provided recommendations and advice to the Board; Reviewed the 2013 operating and financial budgets of the Company; Reviewed the statutory audit plan of the external auditor and the nature and scope of their audit prior to the commencement of the audit, met and further discussed the internal financial audit with the external auditor; Reviewed the internal audit findings and recommendations for 2011 and 2012 and approved the internal audit plan for 2012 and 2013; Reviewed the effectiveness of the internal control system of the Company; Approved the audit fees and the terms of engagement of the external auditor, and reviewed the independence of the external auditor and provided recommendations to the Board on re-appointment of the external auditor. Details of attendance of members of Audit Committee at committee meetings during the reporting period are set out as follows: Audit Committee member Number of meetings attended / held Attendance rate (%) Lee Kit Ying (Chairman) (Note 1) 2/2 100 Gu Zongqin 3/3 100 Lee Kwan Hung (Note 1) 2/2 100 Yang Shubo (Note 1) 2/2 100 Zhu Lei (Note 1) 2/2 100 Tsui Yiu Wa, Alec (Note 2) 1/1 100 Zhang Xinzhi (Note 2) 1/1 100 Note: (1) Ms. Lee Kit Ying, Mr. Lee Kwan Hung, Mr. Yang Shubo and Mr. Zhu Lei were appointed members of the Audit Committee on 5 June During the period from 5 June 2012 to, two meetings of the Audit Committee were held. (2) One meeting of the Audit Committee was held during the period from 1 January 2012 to 5 June 2012 during which Mr. Tsui Yiu Wa, Alec and Mr. Zhang Xinzhi were members of the Audit Committee. 025

28 China BlueChemical Ltd. /Annual Report 2012 Corporate Governance Report Remuneration Committee The Remuneration Committee currently consists of three members, including independent non-executive Directors Mr. Lee Kwan Hung and Ms. Lee Kit Ying, and non-executive Director Mr. Li Hui. Mr. Lee Kwan Hung is the Chairman. The qualifications of the chairman of the Remuneration Committee are in compliance with the requirements under Rule 3.25 of the Listing Rules. The Remuneration Committee is primarily responsible for studying, reviewing and formulating the remuneration policies and proposals, including the standards, procedures and major regimes of performance appraisal, and major proposals and system of rewards and penalties, for the Directors, Supervisors and senior management of the Company, and making recommendations thereon to the Board. The Remuneration Committee shall, with delegated responsibility from the general meeting and the Board, fix the remuneration of the executive Director, Supervisors and senior management. It is also responsible for monitoring the implementation of the Company s remuneration system. In discharging its duties, the Remuneration Committee may consult the Chairman, President and other executive Directors. Remuneration policy The remuneration package policy for executive Director is designed to peg the executive Director s remuneration and his/her performance with the Company s corporate objectives and operating results, while taking into account market conditions, in order to provide performance incentives to and retain executive Director. The remuneration of non-executive Directors (including independent non-executive Directors), which is subject to approval by the Company s general meeting, is mainly fixed after taking into consideration the complexity of the matters to be handled by them and their responsibilities. Pursuant to the service contracts entered into between the Company and the non-executive Directors (including independent non-executive Directors), the out-of-pocket expenses incurred in the performance of their duties (including attending meetings of the Company) by nonexecutive Directors (including independent non-executive Directors) are reimbursable by the Company. The Directors are not entitled to decide upon and approve their own remuneration. Details of the remuneration of each Director for the year ended are set out in Note 9 to the financial statements. Three meetings of the Remuneration Committee were held during the reporting period. The Remuneration Committee was delegated by the Board with the responsibility for fixing the remuneration for the executive Director, Supervisors of the third session and senior management of the Company and making recommendations to the Board regarding the fixing of remuneration for the non-executive Directors (including independent non-executive Directors), and also reviewed the performance appraisal results and the exercise of rights proposal of the grantees of the 2011 H-Share Appreciation Rights. In addition, the Remuneration Committee has signed, by way of communications, a written resolution of the Remuneration Committee in respect of the fixing of remuneration for the employee representative supervisor of the Company. Details of attendance of members of the Remuneration Committee at committee meetings during the reporting period are set out as follows: Remuneration Committee member Number of meetings attended / held Attendance rate(%) Lee Kwan Hung (Chairman) (Note 1) 1/1 100 Lee Kit Ying (Note 1) 1/1 100 Li Hui 3/3 100 Zhang Xinzhi (Note 2) 2/2 100 Tsui Yiu Wa, Alec (Note 2) 2/2 100 Note: (1) Mr. Lee Kwan Hung and Ms. Lee Kit Ying were appointed members of the Remuneration Committee on 5 June During the period from 5 June 2012 to, one meeting of the Remuneration Committee was held. (2) Two meetings of the Remuneration Committee were held during the period from 1 January 2012 to 5 June 2012 during which Mr. Tsui Yiu Wa, Alec and Mr. Zhang Xinzhi were members of the Remuneration Committee. Nomination Committee The Nomination Committee currently consists of three members, including independent non-executive Directors Mr. Gu Zongqin and Mr. Lee Kwan Hung and executive Director Mr. Yang Yexin. Mr. Gu Zongqin is the Chairman. The qualifications of the chairman of the Nomination Committee are in compliance with the requirements under Code Provision A.5.1 of the Corporate Governance Code. The Nomination Committee is primarily responsible for making recommendations to the Board in respect of appointments, re-appointments and succession of the Directors and senior management of the Company and relevant 026

29 Corporate Governance Report China BlueChemical Ltd. /Annual Report 2012 personnel appointed pursuant to the requirements of the Listing Rules, assessing and reviewing the structure, size and composition (including skills, knowledge and experience) of the Board and making recommendations in respect of the changes, re-elections and succession of the members of the Board based on certain standards adopted by the Committee, which standards include the suitability of the Directors in terms of appropriate professional skills, knowledge and experience, personal integrity, honesty and skills, and the amount of time available for serving the business of the Board. The Nomination Committee also assesses the independence of each independent non-executive Director. The nomination procedure for a director candidates is available on the website of the Company, and the specific procedures are: shareholders will recommend candidates for directorship to the Company for consideration; the Nomination Committee will conduct examination of such candidates for directorship and then make recommendations to the Board; following consideration and approval of the Board, the Board will convene a general meeting to which the candidates for directorship will be submitted for consideration. Three meetings of the Nomination Committee were held during the reporting period, at which the Nomination Committee reviewed the structure, headcount and composition of the Board, and provided relevant advice to the Board on candidates for the third session of the Board and candidates for senior management appointment. Details of attendance of members of the Nomination Committee at committee meetings during the reporting period are set out as follows: Nomination Committee member Number of meetings attended / held Attendance rate (%) Gu Zongqin 3/3 100 Lee Kwan Hung (Note 1) 2/2 100 Yang Yexin 3/3 100 Zhang Xinzhi (Note 2) 1/1 100 Note: (1) Mr. Lee Kwan Hung was appointed member of the Nomination Committee on 5 June During the period from 5 June 2012 to 31 December 2012, two meetings of the Nomination Committee were held. (2) One meeting of the Nomination Committee was held during the period from 1 January 2012 to 5 June 2012 during which Mr. Zhang Xinzhi was member of the Nomination Committee. Investment Review Committee The current Investment Review Committee consists of six members, including independent non-executive Directors Mr. Gu Zongqin and Ms. Lee Kit Ying, non-executive Director Mr. Li Hui, Mr. Yang Shubo and Mr. Zhu Lei, and executive Director Mr. Yang Yexin. Mr. Gu Zongqin is the Chairman. The Investment Review Committee is primarily responsible for reviewing investment projects beyond the scope of decision-making authority delegated to the senior management by the Board and making recommendations on decisions to the Board. Two meetings were held by the Investment Review Committee during the reporting period, at which major investment projects of the Company for the reporting period were reviewed and its recommendations on decisions were reported to the Board. Details of attendance of members of the Investment Review Committee at committee meetings during the reporting period are set out as follows: Investment Review Committee member Number of meetings attended / held Attendance rate (%) Gu Zongqin (Chairman) (Note 1) 1/1 100 Lee Kit Ying (Note 1) 1/1 100 Li Hui 2/2 100 Yang Shubo (Note 1) 1/1 100 Zhu Lei (Note 1) 1/1 100 Yang Yexin 2/2 100 Zhang Xinzhi (Note 2) 1/1 100 Tsui Yiu Wa, Alec (Note 2) 1/1 100 Note: (1) Mr. Gu Zongqin, Ms. Lee Kit Ying, Mr. Yang Shubo and Mr. Zhu Lei were appointed members of the Investment Review Committee on 5 June One meeting of the Investment Review Committee was held from 5 June 2012 to. (2) One meeting of the Investment Review Committee was held during the period from 1 January 2012 to 5 June 2012 during which Mr. Zhang Xinzhi and Mr. Tsui Yiu Wa, Alec were members of the Investment Review Committee. 027

30 China BlueChemical Ltd. /Annual Report 2012 Corporate Governance Report 3 Supervisory Committee The Supervisory Committee is accountable to the general meeting and exercises in accordance with the law the following authorities: To review the financial matters of the Company; To oversee the behaviours of Directors and senior management when performing their duties for the Company and make recommendations of dismissal of personnel who have violated the laws, administrative regulations and the Articles; To order the Directors, President and other senior management to rectify any improper behaviours that would be detrimental to the interests of the Company; To verify financial information, such as financial reports, business reports and profit allocation proposals, to be submitted by the Board to the general meeting, and to authorise certified public accountants or practising auditors to re-examine the same in the name of the Company in case of doubt; To propose the convening of extraordinary general meetings, to convene and preside over general meetings when the Board fails to fulfil its duty under the Articles to do so; To put forward proposals to the general meeting; To lodge litigation against the Directors, President and other senior management of the Company in accordance with the Company Law; and To exercise other authorities stipulated in the Articles. The Supervisory Committee currently consists of three members, two of them are external supervisors (as shareholder s representative supervisor and independent supervisor, respectively) and one of them is the employees representative supervisor of the Company. For details of the work performed by the Supervisory Committee, please refer to the Report of the Supervisory Committee on page 49 of this annual report. 4 Senior Management The senior management consists of the Chief Executive Officer, President, Executive Vice President, Chief Financial Officer, Vice President and Board Secretary (Company Secretary). Together with other senior management, the Chief Executive Officer/President of the Company organises and carries out operational and managerial activities of the Company in accordance with the laws and regulations, and the Articles within the powers delegated by the Board, and exercise the following principal duties and powers: To oversee the management of production and operation of the Company and to organise and implement the resolutions of the Board; To organise and implement the annual operating plans and investment proposals of the Company; To propose the establishment of the Company s internal management structure; To propose basic management regime of the Company and formulate basic rules of the Company; To recommend the appointment or dismissal of the Executive Vice President, Chief Financial Officer or Vice President of the Company and to appoint or dismiss management staff other than those required to be appointed or dismissed by the Board; To sign the securities issued by the Company; and To exercise other authorities conferred by the Articles and the Board. 028

31 Corporate Governance Report China BlueChemical Ltd. /Annual Report 2012 The members of the senior management of the Company implement the development strategies and business management plans formulated by the Board. They have extensive expertise and management experience in the respective fields of which they are put in charge and delegated to and formed a management team which worked closely to ensure the efficient conduct of the day-to-day operation of the Company. Moreover, the management furnishes the management accounts of the Company (including internal financial statements) to members of the Board every month as well as such background or explanatory information relating to matters to be discussed by the Board as may be necessary, so that the Directors may fully understand the progress of any material events and the latest business updates of the Company. The Company has set up the Investment Review Committee, the Personnel Committee, the Budget Management Committee and the Science and Technology Committee. Each of the resolution of these specialised committees is passed by way of a poll, providing full assurance for scientific and meticulous decision-making in the operations and investments of the Company. The range of the remuneration of members of senior management for the year ended are set out in Note 9 to the financial statements. 5 Securities Transactions by Directors and Supervisors The Company adopts the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) set out in Appendix 10 to the Listing Rules as the model code for securities transactions by its Directors and Supervisors. After making specific inquiries with the Directors and Supervisors, all Directors and Supervisors have confirmed that during the reporting period, they have strictly complied with the requirements of the Model Code. The Board will examine the corporate governance and operations of the Company from time to time so as to ensure compliance with the relevant provisions of the Listing Rules and to safeguard shareholders interests. 6 Chairman and President Mr. LI Hui acts as the Chairman of the Company and Mr. YANG Yexin acts as the Chief Executive Officer/President of the Company, which is in accordance with A.2.1 of the Corpotate Governance Code, the roles of Chairman and Chief Executive Officer should be seperated and not be held by the same individual. The Chairman is responsible for providing leadership over the effective operation of the Board, while the Chief Executive Officer/President is responsible for the day-to-day business operation of the Group and reports to the Board on the overall operation of the Company. 7 Company Secretary Our Company Secretary, Mr. Quan Changsheng ( Mr. Quan ), is also the Chief Financial Officer/Vice President of the Company who is familiar with the day-to-day affairs of the Company. All Directors of the Company are entitled to the advice and services of Mr. Quan to ensure their compliance with Board procedures and all applicable laws, rules and regulations. Upon enquiry by the Board, Mr. Quan has confirmed his compliance with all requirements stipulated in the Listing Rules in relation to qualifications, experience and training. 8 Communications with Investors The Board recognises the importance of good and effective communication with shareholders as a whole. In addition to the publication of information, announcements and circulars, the Company has also created a section titled Investors Relations on its website where shareholders may access relevant information. Pursuant to the provisions and requirements of the regulatory authorities, the Company is proactive in maintaining a good relationship with investors and making proper information disclosure, as well as maintaining continuous communication with shareholders, which includes, specifically, annual results presentation roadshows, participation in investors forum organized by investment banks, invitation of investors/analysts to visit our sites, as well as interviews or teleconferences with investors. There has been no change to the Articles during the reporting period. The latest full version of the Company s Articles has been published on the websites of the Stock Exchange and the Company respectively. 029

32 China BlueChemical Ltd. /Annual Report 2012 Corporate Governance Report 9 Internal control Pursuant to the requirements of the Corporate Governance Code under the Listing Rules, the Board is responsible for ensuring that the Company s internal monitoring and control mechanism operates soundly, stably and effectively, so as to safeguard the investment benefits of shareholders and the assets of the Company. During the reporting period, the Company maintains a good internal control and risk management system which takes into account the practical circumstances of the Company and strictly complies with the relevant requirements of the Listing Rules and the Basic Internal Control Norms for Enterprises. In 2012, the Company continued to optimise and improve its intra-group internal control system and its internal control and management standard has been enhanced thanks to strengthened implementation of measures through internal audit and internal control inspection and evaluation. To vigorously safeguard against its development and operations risks, the Company built a risk management platform taking into account its development strategy and actual operations management, whereby major risks faced by the Company were identified and assessed and relevant measures were formulated and implemented in a rigorous manner. At the end of 2012, the Audit Committee conducted a comprehensive review of the effectiveness and results of the internal control system of the Company and its subsidiaries, covering important controls over all aspects of financial, operational and compliance control and risk management functions, and reported to the Board in detail. Following the review, the Board has confirmed the effectiveness of the internal control system of the Group. 10 Auditors and Fees Ernst & Young and Ernst & Young Hua Ming are the international and domestic auditors of the Company respectively. The audit fees for 2012 was RMB3.90 million, which has been approved by the Audit Committee. For the year ended, the auditors of the Company and their affiliated entities have not provided any non-audit services to the Company and no non-audit service fee has been incurred. The responsibility statement of the Company s external auditor on the consolidated financial statements is set out on page 51 of this annual report Annual Review on Non-Competition Agreement On 7 September 2006, the Company and CNOOC entered into a non-competition agreement, pursuant to which CNOOC (a) agreed that it will not, and will procure its subsidiaries not to, directly or indirectly, engage in businesses that compete or are likely to compete with the Company s core businesses in China or abroad; and (b) granted the Company the first transaction right, first option and pre-emptive right to acquire any competing businesses. On 20 March 2013, the Company and CNOOC held the 2012 annual review on non-competition. At the meeting, there was a review of the investment opportunities obtained during the reporting period by CNOOC and its subsidiaries (excluding the Group) which compete or are likely to compete with the Group s core businesses. CNOOC and its subsidiaries (excluding the Group) have made an annual declaration confirming that they have fully complied with such undertakings. The independent non-executive Directors have also reviewed whether CNOOC and its subsidiaries (excluding the Group) have fully complied with the undertakings and they are satisfied that CNOOC and its subsidiaries (excluding the Group) have fully complied with the undertakings. 12 Directors Responsibilities for the Financial Statements The Directors acknowledge their responsibilities for the Group s financial statements, and that they should assess the Company s financial position, results, cash flow position and prospects for the period in a balanced, lucid and comprehensive manner based on the timely and appropriate data provided by the management. The Board undertakes that, save as disclosed in this annual report, there is no major event or condition of uncertainty which may significantly affect the Company s ability to continue as a going-concern. 030

33 Directors, Supervisors and Senior Management China BlueChemical Ltd. /Annual Report 2012 Directors, Supervisors and Senior Management Non-Executive Director 1 Mr. LI Hui, was born in 1963 and graduated from the University of International Business and Economics with a bachelor s degree in He is a senior professor in international business with wide-ranging experience in the international trade sector and profound understanding in the operation of the international trade and capital markets. Mr. Li served in a number of positions in China National Metals & Minerals Import & Export Corporation from August 1987 to January 2000, including deputy general manager of its trade unit ( 五礦貿易有限公司 ) and president of its South American unit ( 南美五礦有限公司 ) ; deputy general manager of Beijing Economic-Technological Development Area from September 1998 to January 2000; assistant general manager and deputy director of the oil group of China National Chemicals Import & Export Corporation (which was renamed as Sinochem Group in October 2003, hereinafter referred to as Sinochem ) from January 2000 to July 2001; vice president of Sinochem, director of its oil group and general manager of Sinochem International Oil Company from July 2001 to August 2009; and vice president of Sinochem and general manager of Sinochem Petroleum Exploration and Production Co., Ltd. from September 2009 to May Since May 2010, Mr. Li has been the vice president of China National Offshore Oil Corporation. Mr. Li was appointed non-executive Director of the Company in July Mr. YANG Shubo, was born in 1956 and graduated from the department of Mechanics of East China Petroleum Institute in 1982 with a bachelor s degree in Engineering majoring in Petroleum Mechanics. In June 2000, he obtained a master of business administration degree from Tianjin University. Mr. Yang served as deputy division head of the production technology department, head of the operations division, head of the quality management division and deputy manager at the platform manufacturing plant of China Offshore Oil Bohai Corporation ( 中國海洋石油渤海公司平台製造廠 ) from January 1982 to November 1994; deputy general manager of China Offshore Oil Platform Manufacturing Company ( 中海石油平台製造公司 ) and, concurrently, general manager of Chiwan Shengbaowang Engineering Company ( 赤灣勝寶旺工程公司 ) f rom November 1994 to May 1999; deputy general manager of China Offshore Oil Ocean Engineering Company ( 中海石油海洋工程公司 ) and concurrently managing director of Chiwan Shengbaowang Engineering Company ( 赤灣勝寶旺工程公司 ) from May 1999 to September 2001; executive 031

34 China BlueChemical Ltd. /Annual Report 2012 Directors, Supervisors and Senior Management 032 deputy general manager and managing director of Offshore Oil Engineering Co., Ltd. from September 2001 to October 2005; general manager of the CNOOC Engineering and Construction Department and concurrently general manager of the Engineering and Construction Department of CNOOC Limited from October 2005 to February 2007; assistant to general manager for CNOOC s Rainbow Project from February 2007 to December 2007; deputy general manager of CNOOC Gas & Power Group and concurrently head of its Technology R&D Centre from December 2007 to April 2009; and deputy general manager of CNOOC Refinery & Petrochemicals and Sales Division from May 2009 to December Since December 2011, he has been general manager of CNOOC Refinery & Petrochemicals and Sales Department. Mr. Yang was appointed non-executive Director of the Company in June Mr. ZHU Lei, was born in 1969 and graduated from the department of Petroleum Construction Engineering of Southwest Petroleum University in 1991 with a bachelor s degree in Engineering majoring in Petroleum Storage and Transportation. He has worked in CNOOC Group for over 20 years. He was a quality controller at China Offshore Oil Platform Manufacturing Company ( 中海石油平台製造公司 ) from September 1991 to October 1995; equipment management personnel with the CNOOC Operations Department and Planning Department, respectively, from October 1995 to May 2003; head of the Planning and Statistics Office of the CNOOC Planning Department from May 2003 to January 2009; and deputy general manager of the CNOOC Planning Department from January 2009 to December Since January 2012 he has been deputy general manager of the CNOOC Strategy and Planning Department and deputy general manager of the Strategy and Planning Department of CNOOC China Limited. Mr. Zhu was appointed non-executive Director of the Company in June Executive Directors 4 Mr. YANG Yexin, born in 1956, is an executive Director, the Chief Executive Officer and President of the Company. He graduated from Wuhan Communication Technology University in 1978 majoring in Vessel Engineering, obtained a master s degree in Business Management from China University of Petroleum (Beijing) in 2004 and obtained his qualification as a senior engineer (professorgrade) of CNOOC in early He joined the CNOOC Group in 1978 and had served as mechanical engineer and deputy head of the mechanics division of China Offshore Oil Southern Drilling Company. He served as deputy general manager of CNOOC Nanhai West CPEC (Shekou) Company in 1992; chief officer of the equipment division of CNOOC Nanhai West Corporation in 1993; deputy general manager of China Offshore Oil Southern Drilling Company from 1994 to 1999; general manager of China Offshore Oil Southern Shipping Company from 1999 to 2001; general manager of CNOOC Shipping Company Limited from 2001 to 2002; and director and executive vice president of China Oilfield Services Limited from August 2002 to September Mr. Yang joined the Company in August 2003 and was appointed chairman of CNOOC Fudao Limited. He was appointed as director in September 2003 and general manager of the Company in October He has been chairman of CNOOC Kingboard Chemical Limited since its incorporation. Mr. Yang was appointed executive Director of the Company in April Independent Non-Executive Directors 5 Mr. GU Zongqin, was born in 1955 and graduated from Nanjing Chemical Engineering Institute in February 1982 majoring in Inorganic Chemical Engineering. He worked in the Chemical Fertilizer Division of the Planning Institute of the Ministry of Chemical Industry from February 1982 to June 1991 and served as deputy director of the Chemical Fertilizer Division between July 1991 and June From July 1993 to October 1994, Mr. Gu was assistant to the president of the Planning Institute of Ministry of Chemical Industry and from November 1994 to January 2000, he served as vice president of the Planning Institute of Ministry of Chemical Industry. He has been president and Chinese Communist Party ( CCP ) Committee secretary of the China National Petroleum and Chemical Planning Institute since February 2000 and deputy president of China Petroleum and Chemical Industry Association since April Mr. Gu has been independent director of Shaanxi Xinghua Chemical Co., Ltd. ( 陝西興化化學股份有限公司 ) (a company listed on Shenzhen Stock Exchange) since May 2007 and independent director of Guizhou Chitianhua Co. Ltd. ( 貴州赤天化股份有限公司 ) (a company listed on Shanghai Stock Exchange) since April Mr. Gu was appointed independent non-executive Director of the Company in June Ms. LEE Kit Ying, Karen was born in 1948 and obtained a bachelor s degree from City of London Polytechnic, U.K. (now known as London Metropolitan University) in 1979 majoring in Accountancy and a master s degree from City University of Hong Kong in 1998 majoring in Financial Engineering. She was previously chief financial officer of Hong Kong Exchanges and Clearing Limited and is currently chairman of Virtus Foundation Limited. Ms. Lee has over 20 years experience in derivative products and the operation, supervision and risk management of securities markets. She has previously held a number of senior positions in Hong Kong Futures Exchange, the Stock Exchange and Hong Kong Exchanges and Clearing Limited. Ms. Lee is a fellow of the Institute of Chartered Accountants in England and Wales. Ms. Lee has been independent non-executive director of Tianjin Capital Environmental Protection Group Company Limited (a company listed on the Main Board of the Stock Exchange and Shanghai Stock Exchange) since 18 December Ms. Lee was appointed independent non-executive Director of the Company in June Mr. LEE Kwan Hung, Eddie was born in 1965 and received his Law (LL.B (Honours)) degree and Postgraduate Certificate in Laws from the University of Hong Kong in 1988 and 1989 respectively. He was then admitted as a solicitor in Hong Kong in 1991 and the United Kingdom in 1997 and is a practising lawyer. Mr Lee was senior manager of the Listing Division of The Stock Exchange between 1993 and Mr. Lee currently holds the position of independent non-executive director respectively at Yuexiu REIT Asset Management Limited, Embry Holdings Limited, NetDragon Websoft Inc., Asia Cassava Resources Holdings Limited, Futong Technology Development Holdings Limited, Walker Group Holdings Limited, Newton Resources Ltd, Tenfu (Cayman) Holdings Company Limited and Far East Holdings International Limited, the shares of all of which are listed on the Stock Exchange. Mr. Lee was appointed independent non-executive Director of the Company in June 2012.

35 Directors, Supervisors and Senior Management China BlueChemical Ltd. /Annual Report 2012 Supervisors 8 Mr. QIU Kewen, was born in 1955 and graduated from the Department of Mathematics and Mechanics of Sun Yat-sen University in 1982 majoring in Automatic Control. He enrolled in Management Science and Engineering program at China University of Petroleum at Beijing between September 1997 and July 1999 and obtained a master s degree in Management. Mr. Qiu served as the port supervisor of Guangzhou Maritime Bureau from March 1976 to March 1978; lecturer of Sun Yat-sen University from January 1982 to June 1985; assistant engineer of the Research Center, deputy manager of the Software Department of the Computing Center, assistant to the director of the computing center, deputy director of the computing center, director of the Computing Center and deputy director of the Technology Research Center of CNOOC Nanhai East Corporation from June 1985 to December 1999; vice president and branch secretary of the CCP Committee of CNOOC Research Center, Nan Hai East Institute from January 2000 to April 2004; deputy secretary of CCP Committee, secretary of Discipline Inspection Committee and chairman of the labour union of CNOOC Nanhai East Corporation from May 2004 to July 2009 and concurrently chairman of the Supervisory Committee of CNOOC Huizhou Petrochemicals Service Co., Ltd from June 2004 to May 2006; and secretary of Discipline Inspection Committee and chairman of the labour union of Petroleum Administration of CNOOC Nanhai East Corporation from July to November He has been chairman of the Supervisory Committee of China National Offshore Oil Corporation since November 2009 and chairman of the Supervisory Committee of China Ocean Offshore Oilfields Service (Hong Kong) Limited and CNOOC New Energy Investment Co., Ltd since December Mr. Qiu was appointed Supervisor of the Company in June Mr. HUANG Jinggui, born in 1963, is a specialist entitled to the State Council s special allowance. Mr. Huang is a university professor with more than 20 years faculty experience. He graduated from Wuhan University with a bachelor s degree in economics in 1986 and pursued postgraduate studies in Economics at Peking University. He obtained a doctorate degree in economics from the University of Moscow in He previously was the dean of the School of Economics and Management of Hainan University and head of the university s Master of Business Administration Education Centre. He is currently the dean of Hainan Vocational College of Economics and Business, vice president of the Hainan Federation of Industrial Economics, vice president of Hainan Consumers Association, vice president of Hainan Economics Society and executive director of China Global Economy Society. Mr. Huang is also a part-time professor at the Russian State University of Management, China Centre for Special Economic Zone Research at Shenzhen University, Institute of Economic Development at Wuhan University as well as Liaoning University. He was appointed independent Supervisor of the Company in April Ms. LIU Lijie, was born in 1970 and obtained a bachelor s degree from China Finance Institute (now known as School of Banking and Finance, University of International Business and Economics) in 1993 majoring in International Finance. Ms. Liu currently holds the title of senior accountant and is also a certified public accountant in China. Ms. Liu worked with the Finance Department of China National Chemical Construction Corporation ( CNCCC ) from August 1993 to February She was head of the import and export accounting division under the Finance Department of CNCCC from March 2003 to June 2006; deputy manager of the Finance Department of CNCCC Fine Chemical Industry Co., Ltd. ( 中化建精細化工有限責任公司 ) from July 2006 to May 2007; assistant to the general manager of the Finance Department of CNCCC from June 2007 to June 2008; assistant to the general manager of the Financial Management Department of the Company from July 2008 to August 2009; and deputy general manager of the Treasury Management Department of the Company from September 2009 to August She has been the general manager of the Audit & Supervising Department of the Company since September Ms. Liu was appointed Supervisor of the Company in September Supervisors

36 China BlueChemical Ltd. /Annual Report 2012 Directors, Supervisors and Senior Management Senior Management Senior Management Mr. FANG Yong, born in 1960, is an executive vice president of the Company. Mr. Fang graduated from Shandong TV University in 1984 majoring in electronics. In 1998, Mr. Fang completed a graduate professional program in international trade at the Chinese Academy of Social Sciences. He undertook an EMBA program at Raj Soin College of Business of the Ohio State University in the USA from March 2005 to May He worked for Shandong Shengli Institute of Oilfield Geology from 1976 to 1984, and then joined Henan Zhongyuan Oilfield as head of the contract management division under the ethylene management office. Since 1992, he had been head of foreign affairs, assistant to general manager and manager of the sales office of CNOOC Fudao Limited (which was acquired by the Company in 2001) before being appointed deputy general manager of CNOOC Chemical Limited in April 2001 and director and president of CNOOC Fudao Limited in December He was appointed Director of the Company in November 2003 and deputy general manager in October Mr. Fang was an executive Director of the Company from April 2006 to June Mr. CHEN Kai, born in 1957, is an executive vice president of the Company. Mr. Chen graduated from the Department of Philosophy of Sun Yat-sen University in 1982 majoring in philosophy. He joined the CNOOC Group in 1982 and had served as deputy director of the cultural centre, head of the promotions division, office director, and CCP Committee secretary of CNOOC Nanhai West Corporation as well as CCP Committee secretary of CNOOC Shipping Limited. He was vice president of China Oilfield Services Limited from August 2002 to October 2005; and general manager of Tianye Chemical (which was acquired by the Company in 2006) from July 2004 to January Mr. Chen has been a deputy general manager of the Company since October 2005 and chairman of Tianye Chemical since February Mr. Chen was an executive Director of the Company from April 2006 to June Ms. ZHOU Fan, born in 1962, is an executive vice president of the Company. She graduated from Guangdong Marine University with a bachelor s degree of science in Marine Diesel in August 1983; and completed postgraduate studies in Management Science and Engineering at the China University of Petroleum (Beijing) with a master s degree in Management in December She joined CNOOC Nanhai West Corporation in August 1983 and had served as officer at the personnel department, deputy head of the organisation department and deputy secretary and secretary of the education department of the Communist Youth League Committee. She served as deputy secretary and secretary of Communist Youth League Committee of CNOOC Nanhai West Corporation from May 1989 to May 1998; secretary and deputy general manager of CNOOC Nanhai West Corporation property company from May 1998 to May 1999; deputy secretary of CCP Committee, secretary of the disciplinary committee and chairman of labour union of Zhanjiang Branch of CNOOC from May 1999 to September 2002; deputy secretary and secretary of CCP Committee of CNOOC Nanhai West Corporation from September 2002 to November 2004; deputy general manager of CNOOC Base Group Ltd. and CCP Committee secretary and secretary of disciplinary committee of CNOOC Nanhai West Corporation from November 2004 to August She was appointed executive vice president of the Company in August

37 Directors, Supervisors and Senior Management China BlueChemical Ltd. /Annual Report 2012 Mr. QUAN Changsheng, born in 1966, is the chief financial officer, vice president and Board secretary of the Company. Mr. Quan graduated from East China Petroleum Institute (subsequently renamed as China University of Petroleum ) in 1986 majoring in business management, and joined the CNOOC Group thereafter. He served as accountant, senior accountant, budgetary reporting supervisor and head of accounting at various divisions of CNOOC Nanhai East Corporation, manager of the finance department of the CNOOC QHD32-6 Operating Company from 1999 to 2002; and manager of the finance department of the Tianjin branch of CNOOC Limited from 2002 to Mr. Quan joined the Company in March 2006 and was appointed chief financial officer and vice president in May In July 2007, he was also appointed Board secretary and Company Secretary. Mr. Quan is also director of CNOOC Tianye. He has been chairman of Shanxi Hualu Coal Chemical Ltd. since August Mr. MIAO Qian, born in 1963, is a vice president of the Company. Mr. Miao graduated from Fuzhou University majoring in Civil Construction in He then joined the CNOOC Group and had served as deputy head of the engineering management division of CNOOC Nanhai West Corporation, head of the engineering management division of CNOOC Nanhai West Real Estate Company and manager of CNOOC Nanhai West Jianyuan Company. He joined the Company in May 2002 and served in the methanol project department as assistant to the general manager of the Company. In October 2005, he was appointed deputy general manager of the Company. In September 2010, he was appointed chairman of Hegang Huahe Coal Chemical Ltd. Mr. WANG Weimin, born in 1965, is a vice president of the Company. Mr. Wang graduated from the Department of Chemical Engineering of Hebei Polytechnic Institute in 1989 majoring in organic chemistry. He obtained an MBA degree from the School of Management of Tianjin University in March 2001 and an EMBA degree from China Europe International Business School in July He was technician at Qinhuangdao Sino-Arab Chemical Fertilizer Corp. ( 秦皇岛中阿化肥配套总公司 ) from July 1989 to January 1990; shift leader of process workshop, section leader of finished product workshop and head of finished product workshop of Sino-Arab Chemical Fertilizers Co. Ltd. from January 1990 to June 1994; assistant to general manager and CCP committee member of Sino-Arab Chemical Fertilizers Co. Ltd. from June 1994 to December 1995; production plant manager and CCP Committee member of Sino-Arab Chemical Fertilizers Co. Ltd. from December 1995 to June 1998; deputy general manager and CCP Committee member of Sino-Arab Chemical Fertilizers Co. Ltd. from June 1998 to November 2002; deputy general manager and CCP Committee member of Sino-Arab Chemical Fertilizers Co. Ltd. and leader of the on-site initiation team of the mineral-fertiliser integration project at Dayukou, Hubei from November 2002 to August 2005; general manager and CCP Committee secretary of Hubei Dayukou Chemical Co., Ltd. (which was acquired by the Company in 2009) from August 2005 to July 2008; assistant to president of the Company; and general manager and CCP committee secretary of Hubei Dayukou Chemical Co., Ltd. from July 2008 to July He was appointed vice president of the Company in August 2012,. He has been chairman of Hubei Dayukou Chemical Co., Ltd. since November Mr. ZHOU Renlin, born in 1962, is a vice president of the Company. Mr. Zhou graduated from Nanjing Marine School in 1983 majoring in vessel driving. He obtained his undergraduate qualifications from Jianghan Petroleum University in June 2002 majoring in business administration. He served as crewman, helmsman, captain and deputy manager of business department of China Offshore Oil Southern Shipping Company from September 1983 to April 2000; manager of the Marine Technology Services Company of China OffshoreOil Southern Shipping Company from April 2000 to November 2001; deputy manager of the Crew Services Company of CNOOC Shipping Company Limited from November 2001 to October 2002; deputy general manager of Zhanjiang Branch of China Oilfield Services Limited from October 2002 to September 2004; general manager of the terminal project team of CNOOC Chemical Limited from September 2004 to May 2006; general manager of Hainan Basuo Port Limited from May 2006 to March 2007; assistant to president of the Company and general manager of Hainan Basuo Port Limited from March 2007 to April 2010; and assistant to president of the Company and executive deputy general manager of [Hainan Base] from April 2010 to July Mr. Zhou is also chairman of Hainan Basuo Port Limited. Mr. Zhou was appointed vice president of the Company in August